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Jersey Unreported Judgments |
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Albion Energy Limited v Energy Investments Global Limited and Heritage Oil Limited [2020] JRC 147A (30 July 2020) URL: http://www.bailii.org/je/cases/UR/2020/2020_147A.html Cite as: [2020] JRC 147A |
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Security interest - application for orders
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Before : |
J. A. Clyde-Smith O.B.E., Commissioner, and Jurats Blampied and Thomas |
|
Between |
Albion Energy Limited |
Representor |
|
And |
Energy Investments Global Limited |
First Respondent |
|
And |
Heritage Oil Limited |
Second Respondent |
IN THE MATTER OF THE REPRESENTATION OF ALBION ENERGY LIMITED
AND IN THE MATTER OF HERITAGE OIL LIMITED
AND IN THE MATTER OF AN APPLICATION UNDER ARTICLE 52 OF THE SECURITY INTERESTS (JERSEY) LAW 2012
Advocate A. D. Hoy for the Representor.
Advocate D. M. Cadin for the First and Second Respondent.
judgment
the COMMISSIONER:
1. Albion Energy Limited ("Albion") applies for orders under the Security Interests (Jersey) Law 1991 ("the Security Interests Law") against Energy Investments Global Limited ("EIGL") to enable it to enforce its security over shares in Heritage Oil Limited ("Heritage Oil").
2. The background to this case is succinctly contained in the judgment of Foxton J in Albion v Energy [2020] EWHC 301 (Comm), whose wording we adopt.
3. Heritage Oil was founded by Mr Anthony L. R. Buckingham and is an oil production and exploration company incorporated in Jersey. It was listed on the London Stock Exchange. In 2014, EIGL, a BVI incorporated company beneficially owned by Sheikh Hamad, the former prime minister of Qatar, acquired 80% of the share capital of Heritage Oil and took the company private. The other 20% remained owned by Albion, a Guernsey incorporated company, beneficially owned by Mr Buckingham.
4. On 31st January 2018, Albion sold its remaining 20% interest in Heritage Oil to EIGL on the terms of a share purchase agreement ("the SPA") governed by English law, for the sum of $100 million payable in three instalments. There were six parties to the SPA, which contained other provisions beyond the sale transaction. In addition to Albion and EIGL, the other parties were Heritage Oil, Mr Buckingham, a company called Albion Resources Limited and a company called Sundance Investments Limited.
5. The first two instalments under the SPA were paid by EIGL. However, shortly before the final instalment became due on 20th December 2018, Macfarlanes LLP, on behalf of Heritage Oil, wrote to Albion on 14th December 2018 asserting claims against Mr Buckingham. By a second letter of the same date, Macfarlanes LLP wrote to Albion on behalf of EIGL, saying that in view of Heritage Oil's claims against Mr Buckingham, EIGL intended to withhold payment of the outstanding amount payable under the SPA. There was no suggestion at that stage that the matters raised in Macfarlanes LLP's correspondence gave EIGL its own claim against Albion.
6. On 15th December 2018, Charles Fussell & Co LLP, the English solicitors acting for Albion, pointed out that any claims which Heritage Oil might claim to have could not provide a legitimate reason for EIGL to withhold the final instalment of the purchase price due to Albion. In response, on 17th December 2018 Macfarlanes LLP suggested for the first time that the matters raised were capable of supporting a petition for unfair prejudice which could give EIGL a claim against Albion.
7. Solicitors' correspondence followed in which EIGL agreed to pay US$20 million of the outstanding instalment unconditionally, with the remaining US$13.3 million to be held by Charles Fussell & Co LLP on the terms of an escrow agreement dated 22nd January 2019 ("the Escrow Agreement").
8. Albion subsequently brought proceedings in the High Court against EIGL and sought summary judgment for the outstanding amount of US$13.3 million. In response, EIGL sought a stay of proceedings, relying for this purpose on the arbitration clause in the Escrow Agreement. Alternatively, EIGL contended that Albion was not entitled to summary judgment, because it had a defence with a realistic prospect of success, namely an equitable set-off arising from EIGL's claim for relief for unfair prejudice against Albion. EIGL also contended that the proceedings should be stayed under the inherent jurisdiction of the English Court, pending the determination of EIGL's unfair prejudice claim proceedings to be commenced in Jersey.
9. Advocate Cadin, for EIGL and Heritage Oil, referred us to Macfarlanes LLP's letter of 21st November 2018 to Mr Buckingham which he says encapsulates the issues at the heart of this matter, namely a number of historic payments made by Heritage Oil to third parties when Mr Buckingham was a director of Heritage Oil ("the Disputed Payments"). The Disputed Payments are substantial and according to the letter appear to have been made for unspecified consultancy services or for services generally described as "community relations", but there was an absence of documentation which sets up the precise nature of the services which were to be provided, the rationale for such payments or the services which were ultimately provided.
10. In the proceedings before the High Court, Foxton J reached the following conclusion:
11. For these reasons, on the 14th February 2020 Foxton J refused EIGL's application for a stay and granted Albion's application for summary judgment on its claim for the balance of the purchase consideration in the sum of $13.3 million. An application by EIGL to appeal the decision of Foxton J was refused and his decision is therefore final.
12. The purchase consideration of $100 million was secured over the 20% of the shares in Heritage Oil, namely 57, 748,991 ordinary shares of no par value, that were sold to EIGL and this pursuant to a Security Interest Agreement dated 31st January 2018 ("the SIA"), which is governed by Jersey law.
13. The security interest was created by Albion taking possession of the three share certificates of the shares sold as issued in the name of EIGL and undated and signed stock transfer forms relating to each certificate, and this pursuant to Article 22(3) of the Security Interests Law, which provides:
14. The relevant part of Article 3 provides as follows:-
15. "Investment security" is defined under Article 1 as meaning an investment specified in any of the paragraphs 1 to 8 and 10 of Schedule 1 to the Financial Services (Jersey) Law 1998, Article 1 of that Schedule specifying shares and stock in the share capital of a company.
16. The liabilities secured by the SIA are defined under clause 1(r) as meaning EIGL's obligation to pay any unpaid portion of the consideration pursuant to the SPA. Clause 3 of the SPA is in these terms:-
3 Consideration
3.1 The aggregate consideration payable for the purchase of the Shares shall be the sum of $100,000,000 (one hundred million US Dollars) payable to the Seller in the following instalments:
3.1.1 within 10 days following the Completion Date, the sum of $33,333,333;
3.1.2 on 20 June 2018 (or if that date is not a Business Day, on the first Business Day thereafter) the sum of $33,333,333; and
3.1.3 on 28 December 23018 (or if that date is not a Business Day, on the first Business Day thereafter) the sum of $33,333,334.
3.2 The Buyer irrevocably undertakes to pay each instalment of the Consideration set out in clause 3.1 in cash by way of electronic transfer of immediately available funds for value on the relevant date for payment specified in clause 3.1 to the Seller's Account (or to such account as the Seller shall have notified the Buyer not less than five Business Days prior to the relevant date for any payment.)"
17. Clause 4.2 of the SPA provides that on completion:
"4.2 the Buyer shall deliver or procure to be delivered to the Seller the Share Security interest Agreement, duly executed by the Buyer and the Seller."
18. Under the SIA, "Shares" is defined as meaning "the number of ordinary no par value shares in the share capital of the Company over which a security interest has been created pursuant to this Agreement, during the Security Period, as set out in the Schedule to this Agreement" and the schedule is in this form:
|
|
Security Period |
Shares |
|
1. |
From the date of this Agreement to the First Release Date |
19'249'663 |
|
2. |
From the first Release Date to the Second Release Date |
19'264'664 |
|
3. |
From the Second Release Date to the Final Release Date |
19'249'664 |
19. "Event of Default" is defined under clause 1(1)(h) of the SIA as meaning EIGL's "failure to pay any instalment of the Consideration when due and payable under the SPA."
20. The "Security Period" is defined under clause 1(1)(u) of the SIA as meaning "the period beginning on the date of this Agreement and ending on the date on which the Grantor has paid the Consideration to Albion in full, in accordance with the SPA."
21. The release dates of the security are defined in the SIA as the dates upon which each of the three instalments is paid by EIGL, pursuant to the SPA, and Clause 11 of the SIA (in which Albion is defined as "the Secured Party" and EIGL as "the Grantor") provides for the release of that security as follows:
"11 RELEASE OF SECURITY
The Secured Party agrees and covenants in favour of the Grantor that:
On the First Release Date, any security interest created pursuant to this Agreement over any amount of shares in the share capital of the Company which no longer constitute Shares (with reference to the Schedule to the Agreement) will be automatically, irrevocably and unconditionally extinguished with immediate effect and the Secured Party will forthwith return to the Grantor any Share Certificate it holds in respect of such released shares PROVIDED ALWAYS this shall be without prejudice or effect to the security interest over the remaining Shares which are not released on the First Release Date;
On the Second Release Date, any security interest created pursuant to this Agreement over any amount of shares in the share capital of the Company which no longer constitute Shares (with reference to the Schedule to this Agreement) will be automatically, irrevocably and unconditionally extinguished and the Secured Party will forthwith return to the Grantor any Share Certificate it holds in respect of such released shares PROVIDED ALWAYS this shall be without prejudice or effect to the security interest over the remaining shares which are not released on the Second Release Date; and
On the Final Release Date, any security interest created pursuant to this Agreement over any amount of shares in the share capital of the Company which no longer constitute Shares (with reference to the Schedule to this Agreement) will be automatically, irrevocably and unconditionally extinguished with immediate effect and the Secured Party will forthwith return to the Grantor any Share certificate it holds in respect of such released shares.
Following a Release, the Secured Party shall, on the written request of the Grantor and at the cost of the Grantor, execute a partial or final (as the case may be) release of the security interest constituted by or pursuant to this Agreement on such terms as the Secured Party may determine."
22. On or shortly following completion of the sale of the shares on 31st January 2018, three certificates were issued in the name of EIGL and delivered to Albion (with stock transfer forms) pursuant to the SIA as follows:
(i) Certificate 00001770 for 19,249,663 fully paid up ordinary shares of no par value,
(ii) Certificate 00001772 for 19,249,664 fully paid up ordinary shares of no par value.
(iii) Certificate 00001771 for 19,249,664 fully paid up ordinary shares of no par value.
23. In addition to the provision of this security, the articles of EIGL were amended on the completion date by way of special resolution by adding a new Article 50A, under which, by way of summary, in the case of any transfer pursuant to any security interest agreement "the directors shall not decline and must recognise and immediately register any transfer of Shares, nor may they suspend registration thereof, where the directors have received an instrument of transfer accompanied by the certificate for such share, or where the certificate is not available, an indemnity in respect thereof in a form reasonably acceptable to the Company ..."
24. The special resolution has not been forwarded to the Registrar as required by Article 100(1) of the Companies (Jersey) Law 1991 and failure to comply with that requirement is an offence, pursuant to Article 100(5). However, the special resolution remains effective notwithstanding that a copy has not been delivered to the Registrar, and this pursuant to Article 100(6).
25. The chronology shows that the first instalment of $33.3 million was paid by EIGL within ten days of completion as required under the SPA. However, on 13th March 2018, Bedell Cristin, acting for EIGL and Heritage Oil, wrote to Charles Fussell & Co LLP, asking for the original stock transfer forms and corresponding share certificates to be provided in connection with the sale, as required by Computershare. In what is accepted by the parties as an error, Albion's solicitors not only sent the original share certificates and transfer forms in relation to the sale by Albion to EIGL, but also the original share certificates issued in the name of EIGL and associated stock transfer forms possession of which constituted the security interest. The significance of this is made clear by Article 22(5) of the Security Interests Law which provides:
26. The second tranche of the consideration was paid by EIGL on 20th June 2018. Of the third tranche due on 20th December 2018, $20 million was paid on 24th December 2018 and on 18th January 2019, the balance of $13.3 million was paid to Charles Fussell & Co LLP to be held on the terms of the Escrow Agreement.
27. Despite numerous requests, EIGL have not agreed to the return of the share certificate and stock transfer form in relation to the third tranche and this despite its obligations under Clause 4(1) of the SIA, in which it covenanted as follows:
"GENERAL COVENANTS
The Grantor agrees and covenants with the Secured Party until the end of the Security Period:
(1) Contemporaneously with the execution and delivery of this Agreement, to deliver to the Secured Party (or to such person that the Secured Party may direct) all of its share certificates in respect of the Shares (each a "Share Certificate") together with updated and signed duly completed stock transfer forms in respect of the Shares relating to each such share certificate (each a "Stock Transfer Form"")
(2) ...
(3) To procure that the Secured Party's security interest in the shares is noted on the register of Members of the Company;
(4) Without prejudice to any other provision of this Agreement and after any request is made by the Secured Party, to do all things necessary (subject at all times to Clause 14) to ensure that the Secured Party has control for the purposes of Article 3 of the Security Law in respect of any investment securities that constitute Collateral (including, without limitation, following the occurrence of an Event of Default, by the Secured Party becoming the registered holder of such investment securities);"
28. The parties to the Escrow Agreement are Albion, Mr Buckingham and EIGL, and under it, in summary:
(i) Charles Fussell & Co LLP gave an undertaking that they will hold these funds strictly to the joint order of EIGL and Albion and will not instruct their bank to transfer the funds to any person other than on the joint instruction of EIGL and Albion, or pursuant to an order of a Court with competent jurisdiction.
(ii) EIGL will procure Heritage Oil to provide Mr Buckingham with all the necessary documentation and information to enable him to respond to the queries set out in Macfarlanes LLP's letter of 21st November 2018.
(iii) If they remained in dispute after 1st March 2019, they would use reasonable endeavours properly to agree an appropriate dispute resolution process to resolve the dispute and will not commence any proceedings in relation to the matters in dispute prior to 1st April 2019.
(iv) The transfer of the funds to Albion's solicitors was entirely without prejudice to the legal rights and obligations of the parties.
(v) Any dispute or difference arising out of or in connection with the Escrow Agreement would be referred to and finally settled by arbitration in England.
29. On 23rd March 2020, Albion exercised its powers under the power of attorney in the SIA to execute a stock transfer form on behalf of EIGL in favour of Albion which was delivered to Heritage Oil with an instruction that Albion's name be entered into the register of members as the holder of the shares constituting the final tranche, but that transfer has not been registered.
30. Albion therefore applies for the assistance of the Court in the enforcement of its security pursuant to Article 52 of the Security Interests Law, which is in the following terms:
31. Pursuant to Article 25, Albion seeks the following relief:
"(3) that [EIGL] shall deliver the Original Share Certificates and stock transfer form relating to the Original Share Certificates to [Albion] in accordance with clause 4.1 of the Security Interest Agreement;
(4) ...
(5) That for the purposes of ensuring that [Albion] has control for the purposes of Article 3 of the Law and perfection for the purposes of Article 22 of the Law in respect of 19,249,664 shares constituting the Final Tranche:
i. [EIGL] shall transfer the 19,249,664 shares constituting the Final Tranche into the name of [Albion]; and
ii. [Heritage Oil] shall register the transfer of the 19,249,664 shares constituting the Final Tranche from [EIGL] to [Albion] in its register of members and shall issue a certificate of title to reflect such entry in the register of members and deliver the same to [Albion];
(6) [Albion] shall further be permitted to exercise all its powers of enforcement under the Law and the Security Interest Agreement including its powers to appropriate, sell or take any other ancillary action at such times and at such intervals as [Albion] shall deem appropriate in relation to the 19,249,664 shares constituting the Final Tranche:
(7) [EIGL] and/or [Heritage Oil] shall take any reasonable action or steps to enable [Albion] to carry out its powers of enforcement under the Security Interest Agreement and the Law;"
32. The position of EIGL and Heritage Oil is, in summary:
(i) The security is unperfected as Albion does not have possession or control of the relevant share certificate. Pursuant to Clause 14 of the SIA, the parties had agreed not to perfect the security by registration, pursuant to Article 22(4) of the Security Interests Law on the register maintained by the Registrar of Companies, pursuant to Part 8 of the Security Interests Law, so that perfection was reliant entirely on possession and control.
(ii) The shares subject to the SIA are neither identified nor identifiable from among the amorphous mass of 323,347,397 issued shares in Heritage Oil. In the premises, the SIA does not meet the requirements of Article 18(1) of the Security Interests Law and as a consequence, the security interest is not enforceable against the EIGL. Article 18(1) and (2) provide as follows:
(iii) The SPA is governed by English law, and under the English law doctrine of merger, the cause of action (i.e. the unpaid monies due under the SPA) has been extinguished by the judgment of Foxton J, so that:
(a) There is no longer any contractual sum to be paid;
(b) Albion's right to payment is a right to payment under the judgment only;
(c) Albion does not have any right to payments under the SPA or to security under the SIA, which is ancillary to the SPA and which has now terminated by operation of law.
(iv) The judgment of Foxton J is a judgment capable of reciprocal enforcement under the Judgments (Reciprocal Enforcement) (Jersey) Law 1960 ("the Reciprocal Enforcement Law"), Article 8 of which gives effect to the doctrine of merger in relation to foreign judgments by providing:
For the Royal Court to proceed to adjudicate under the SIA, it would have to hold that the current proceedings are not "for the recovery of a sum payable under a judgment", thereby going contrary to the English law position that the obligation to pay under the SPA has been extinguished by the judgment and condemning EIGL to the possibility of losing its shares and still having to meet the judgment of Foxton J in full.
(v) In terms of the relief sought by Albion, it was entirely unclear against what collateral Albion seeks to enforce and it was never envisaged that Albion would have shares transferred into its own name. Furthermore, it was not "reasonably necessary" for the Court to exercise its powers under Article 52 of the Security Interests Law. Albion was not acting in a commercially reasonable way, as the enforcement provisions under the Security Interests Law require.
33. The Court was satisfied that Albion was entitled to the relief it sought, essentially for the reasons put forward by Advocate Hoy for Albion.
34. We take first the issue of whether the collateral has been sufficiently identified for the security interest to attach to it, pursuant to Article 18 of the Security Interests Law.
35. Under clause 1(1)(c) of the SIA, "Collateral" is defined as meaning "the Shares" (and "Related Property", namely monies paid or payable in respect of the Shares). As set out above, the Shares are defined as the number of no par ordinary shares in Heritage Oil set out in the Schedule.
36. Advocate Cadin described the Schedule as listing non overlapping, sequential security periods under columns which provide figures for shares, but do not contain or recite any method or way in which the respective blocks of shares are to be identified from the other shares in Heritage Oil. On the face of the SIA, he said it could not and did not create a single security over the total of 57,748,991 shares, and at its highest, it purported to create three separate sequential security interests, namely one from the date of the SIA over 19,249,663 shares, one from the First Release Date to the Second Release Date over 19,249,664 shares and one from the Second Release Date to the Final Release Date over 19,249,664 shares.
37. As Mark Dunlop says in Security Interests (Jersey) Law 2012, at page 21, a security interest may describe collateral in wide terms. Under Article 18(2) a description is sufficient if it is a description by item or type. The annual returns of Heritage Oil show that it has only one class of shares, namely ordinary shares of no par value. At the time of the SPA, EIGL already owned 80% of the issued share capital and under its terms, it agreed to purchase the 20% owned by Albion, namely 57,748,991 ordinary shares of no par value over which the security interest was to be created as security for the payment of the consideration over the three instalments.
38. Under the provisions of the contemporaneously executed SIA, EIGL delivered into the possession of Albion three numbered share certificates in the amounts set out in the schedule, which total the number of shares sold. It is correct that the three share certificates did not attribute numbers to the shares certified to be held, but in the context of the share capital of Heritage Oil, this makes no difference. Each certificate certified that EIGL was the registered holder of the total number of shares specified in that certificate and on presentation of that certificate to the company with a duly executed stock transfer form, no difficulty arises in that number of shares being registered into the name of Albion.
39. In our view, the collateral has been identified by item and type sufficient for a security interest to attach to it. The security interest attached to the shares covered in all three certificates from the outset of the SIA and logically it would be the first numbered certificate in the amount of 19,249,663 shares that would be released on the payment of the first instalment, the second certificate released on the payment of the second instalment and the third certificate released on the payment of the third instalment. The payment of the first and second instalments having now been made, the shares covered by certificates numbered 00001770 and 00001771 are released, with the security over the shares covered by certificate 00001772 remaining in place.
40. It is the case that Albion lost possession of the certificates and stock transfer forms when they were sent in error to Bedell Cristin. In his second affidavit, Mr Iain Mackie of Macfarlanes LLP acknowledges in paragraph 32 that they were sent in error. The obligation on EIGL to deliver the certificates and stock transfer forms to Albion and to keep it in control of the same under the provisions of clause 4(1) of the SIA are clear and that obligation endures for the duration of the Security Period, i.e. until the last instalment has been paid in full under the SPA. Advocate Cadin did not seek to argue that under the terms of the SIA, EIGL is no longer obliged to return the third certificate and related stock transfer form to Albion. His argument is that EIGL's obligations under the SPA have now terminated, and the SIA with it. EIGL's obligation is now under the judgment. We therefore turn to the issue of merger.
41. Advocate Cadin pointed to the requirement for questions of foreign law to be determined as matters of fact on the basis of evidence (Rule 25 of Dicey, Morris & Collins 15th edition and Doraville Properties Corporation v AG [2016] (1) JLR Note 9). He relies on the first affidavit of Mr Mackie as constituting expert evidence on the English law of merger. Advocate Cadin accepts that Mr Mackie is not independent, his firm acting for EIGL and Heritage Oil and his evidence as to English law is short and couched in terms of belief and being subject to submissions. However, that does not give rise to any difficulties for the Court in the light of the authorities cited by both counsel.
42. The doctrine of merger was considered by the English Court of Appeal in Clark v In Focus Asset Management [2014] 1 WLR 2502. The claim concerned an award by the Financial Ombudsman Service which had been accepted by the complainant. The principal issue before the Court of Appeal was whether the award was a judicial decision capable of giving rise to res judicata. At paragraphs 3 - 5 of the judgment, Arden LJ explains the doctrine of merger:
43. At paragraphs 11 and 12, he explained the rationale for the doctrines of both merger and res judicata:
44. In Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd (formerly Contour Aerospace Ltd [2013] UKSC 46, a decision of the Supreme Court, Lord Sumption provided a summary of the general principles of res judicata:
45. These principles have been adopted as part of the law of Jersey in Dubai Islamic Bank v Ridley [2016] JRC 102 (at paragraphs 108 - 109) and on appeal in Dubai Islamic Bank v Ridley [2017] JRC 204 and in Brakspear v Nedgroup Trust (Jersey) Limited [2018] JRC 121 at paragraphs 64-6, although in these cases, the Court was not expressly concerned with the doctrine of merger. Even so, we agree with both counsel that the doctrine applies in this jurisdiction, the issue being whether, properly understood, it applies on the facts of this case.
46. The doctrine has been considered more recently in Zavarco PLC v Tan Sri Sayed Mohd Yusof Bin Tun Syed [2020] EWHC 629 (Ch) which was concerned with whether the doctrine applied to a declaratory judgment. Birss J gave this explanation as to the doctrine:
47. Having referred to the judgment of Lord Sumption set out above, he continued at paragraphs 14-16:
48. Having regard to the terms of the declaratory judgment, the Court found that the cause of action had not been merged into it, given its terms and Zavarco PLC still had a right to €36 million in cash from Mr Nasir, reversing the earlier decision of Chief Master Marsh Zavarco PLC v Tan Sri Sayed Mohd Yusof Bin Tun Syed (2019) EWHC 1837 (Ch).
49. Advocate Cadin argued that as the SIA is drafted to be subservient and inextricably linked to the SPA and to the extent that obligations under the SPA are varied or extinguished so too are the corresponding obligations under the SIA. As a matter of its proper law, he said the obligations under the SPA had been extinguished, and there could be no payment "pursuant to the SPA" nor can there be any secured liabilities as defined. He said it was never intended by the parties that Albion would seek judgment before seeking to enforce the SIA, as evidenced by clause 15(7) of the SIA, which is in these terms:
"(7) The Secured Party is not obliged to marshal, enforce, apply, appropriate, recover or exercise any security, guarantee or other right held at any time by it, or any amounts or other property that it holds or is entitled to receive, or have recourse to any other remedy, before enforcing the security interest constituted by or pursuant to this Agreement."
50. We do not accept that on a proper construction of the SIA, it can be said that the parties intended Albion to seek to enforce its security before seeking any judgment. Clause 15(7) gives no support to that proposition and clause 18 dealing with the governing law and jurisdiction expressly contemplates proceedings. There are many circumstances in which a secured party may need to take judgment before having recourse to any security it may hold and there is nothing in the SIA, in our view, that seeks to dictate the order in which Albion may have recourse to its remedies. It would be unusual for a secured party to be restricted in that way.
51. Having elected to pursue a judgment in England, rather than the security in Jersey, Advocate Cadin submitted that Albion had brought the SIA to an end, terminating the secured liabilities, making the performance of the SIA impossible and rendering the SIA unintelligible and thereby terminating it by operation of law.
52. The Court found this a somewhat startling proposition. There is nothing particularly unusual in the security provided under the SIA, with the delayed purchase consideration for shares being secured by a security interest over those shares by possession of the certificates. If Advocate Cadin was correct that, by the doctrine of merger, a judgment extinguishes the underlying contract, and security provided under it, leaving the lender with an unsecured judgment only to enforce, it would mean that secured parties generally would have to enforce their security in full before proceeding to take judgment, because the taking of that judgment would extinguish the security in its entirety.
53. We observe that whilst none of the cases referred to above dealt with the issue of security, in none of them is there any suggestion that where the doctrine of merger applies, the judgment taken extinguishes not only the cause of action, but any collateral security taken for it. We venture to suggest that this is because the position in relation to collateral security had been settled under English law in a number of 19th century cases.
54. Advocate Hoy referred the Court to this passage from Halsbury's Laws of England¸ Volume 22 (Contract) at paragraphs 416:
55. Halsbury cites inter alia the case of Drake v Mitchell [1803] 3 East 251 as authority for the proposition that the creditor is not precluded by the judgment from enforcing any collateral security which he may have taken. In that case three lessees had promised to pay the claimant rent on a mine. One had subsequently provided a promissory note for part of the rent and the claimant had then obtained judgment on the promissory note. But the judgment was not paid. The question was whether the giving of the promissory note or the judgment obtained on it discharged the original promise to pay rent. The Court of King's Bench held it did not. Quoting from the judgment of Lord Ellenborough CJ, in case of Drake v Mitchell at page 596:
56. Similarly, Grose J said at page 597:
57. Foxton J considered Albion's remedies at paragraph 25 of his judgment:
Whilst these comments are obiter, Foxton J clearly did not consider that granting judgment would have the significant consequence of extinguishing any security held by Albion.
58. The point was referred to in the judgment of Chief Master Marsh in Zavarko v Nasir where he said at paragraph 40:-
59. As Arden LJ said in Clark v In Focus Asset Management, the term "cause of action" is used to describe the various categories of factual situations which entitle one person to obtain from the Court a remedy against another. The SPA entitled Albion to seek judgment for the unpaid balance of the third instalment and that entitlement is now merged into the judgment. That merger does not extend to or affect the underlying contractual rights and obligations of the parties under the SPA and SIA, in particular in relation to security. In this respect, it is relevant to note that there were six parties to the SPA, with contractual rights and obligations as between them clearly intended to endure beyond any merger by judgment.
60. The SPA and SIA constitute a set of facts that entitle different claims for different causes of action, namely in this context a right for Albion to seek judgment for the amount owed and a separate right for Albian to enforce its security. The purpose in Albion bringing these proceedings is for assistance in the enforcement of its security and not to obtain a further summary judgment against EIGL for the amount unpaid. These proceedings are therefore not in breach of Article 8 of the Reciprocal Enforcement Law.
61. Advocate Hoy also prayed in aid the following provisions of the SIA:-
"10 No impairment
The obligations of the Grantor under this Agreement, and the security interest constituted by or pursuant to this Agreement, shall not be discharged, released, impaired, prejudiced or otherwise affected in any way by
(1) ...
(2) Any act or omission by the Secured Party in taking up, perfecting or enforcing any security, indemnity, guarantee or other claim from or against the Grantor.
15. Miscellaneous
(1) The security interest constituted by or pursuant to this Agreement shall be independent of and in addition to and shall not merge with or be prejudiced or affected by or otherwise prejudice or affect any contractual or other right or remedy ... or other security or other right now or hereafter held by or available to the Secured Party." (His emphasis)
62. Advocate Cadin responded that Clause 15(1) is unclear and properly interpreted provides that "security interest constituted by or pursuant to this Agreement .... shall not merge with or be prejudiced or affected by or otherwise prejudice or affect the existence of any contractual or other right or remedy". (underlined words added). As on his case all of Albion's contractual rights had now been extinguished, he submitted that clause 15 is rendered irrelevant.
63. We accept Advocate Cadin's submission that the SIA is linked to the SPA in that it provides security for EIGL's obligations under the SPA and if he is right that as a matter of law, and notwithstanding the contractual intentions of the parties to the contrary, all of Albion's rights and obligations under the SPA have merged with the judgment, thus extinguishing the SPA, then it must follow that the SIA would fall with it.
64. We have found, however, that merger by judgment does not extinguish the rights and obligations of the parties under the SPA and SIA and reliance therefore upon clauses 10 and 15(1) is rendered otiose.
65. Advocate Cadin argued that the judgment debt could not be secured by the SIA because the Secured Liabilities as defined, would be susceptible to being increased in scope and amount otherwise than in accordance with the terms of the SIA. For example, he said, a money judgment might also include declaratory orders, orders for specific performance, costs and interest.
66. In our view, what is secured under the SIA is a matter of the construction of that agreement in the light of the provisions of the Security Interests Law. The Secured Liabilities are defined under Clause 1(1)(r) as EIGL's obligation to pay any unpaid portion of the consideration under the SPA and it is not in dispute that the sum of US$13.3 million remains unpaid in respect of the final instalment due under the SPA. Under the SPA there is no provision for the payment of interest on any outstanding instalments. It would follow that the SIA does not purport, therefore, to secure anything other than this outstanding amount; in particular it does not secure the costs or interest ordered by Foxton J.
67. To summarise the position we have reached so far:
(i) The collateral under the SIA has been sufficiently identified for the purposes of Article 18 of the Security Interests Law.
(ii) Albion lost possession of the third share certificate and associated stock transfer form in error and EIGL is obliged under the SIA to return them.
(iii) The doctrine of merger and Article 8 of the Reciprocal Enforcement Law does not prevent Albion from seeking to enforce its security over the shares in Heritage Oil in Jersey.
68. Advocate Cadin submitted that it was not "reasonably necessary" for the Court to exercise its powers under Article 52 of the Security Interests Law. The enforcement provisions under Part 7 of the Security Interests Law required Albion to act in a "commercially reasonable manner" and to the extent the Court was being invited to exercise its powers under Article 52 "to make it possible or practicable for the secured party to exercise his or her rights under this Part", it must be satisfied that Albion is acting in a commercially reasonable manner and that what it was being asked to do is reasonably necessary.
69. In his view, Albion was adopting a wholly unreasonable approach in that:
(i) EIGL had paid the consideration monies due under the SPA in full, albeit that the balance is held by Albion's English solicitors subject to the Escrow Agreement.
(ii) The reason that the monies cannot be released from escrow is because Albion has refused to engage in the arbitration process envisaged. Instead, Albion has embarked upon multitude of proceedings, both in this jurisdiction and in the United Kingdom.
(iii) Albion is seeking to avoid resolution of the issues between the parties and thereby to perpetuate conflict and litigation and accrue unnecessary costs.
(iv) The purpose of the SIA was to secure performance of EIGL's obligations under the SPA and to the extent it failed to do so to provide a simple route to enforcement, which Albion has chosen not to pursue.
(v) The issues between the parties will have to be resolved at some stage and it is unreasonable to ignore them, in the hope that they will simply go away.
(vi) At its highest, the representation brought by Albion is unnecessary satellite litigation.
70. Against this background, he said it was not reasonably necessary for the Court to exercise any of its powers and the parties should be encouraged to resolve the actual dispute between them in accordance with the provisions they have agreed under the Escrow Agreement i.e. arbitration.
71. Further and/or alternatively to the extent that the Court regards it as necessary to exercise its powers, it would not be reasonable to do so in circumstances where there is an ongoing dispute and monies have been paid into escrow, so that the effect of making any of the orders sought would be to deprive EIGL and Heritage Oil of the shares in circumstances where they have paid over US$33.3 million to Albion's solicitors, are subject to a judgment for a similar amount plus interests and costs and will not, under the terms of the SPA, the SIA or otherwise get any credit for the application of the said security.
72. The Court inquired in discussion why EIGL had not agreed to the release of the monies held by Albion's solicitors under the Escrow Agreement to meet the judgment debt or why Albion had not sought to enforce the judgment against those monies. We were simply told that neither had taken place. Dispute resolution had clearly not been successful and the parties remained in dispute.
73. It is notable that Heritage Oil is not a party to the Escrow Agreement, when it is Heritage Oil that has the Disputed Claims against Mr Buckingham. The fundamental point made by Foxton J at paragraph 95 of his judgment (set out above) is that such claims cannot provide a defence to Albion's claims against EIGL under the SPA for the balance of the purchase consideration. Hence the granting to Albion of summary judgment in the amount of the balance due.
74. Without Heritage Oil being a party to the Escrow Agreement, it is unclear to the Court what issues would now be subject to arbitration under its provisions, but what is clear to the Court is that:
(i) The payment of the balance into escrow was expressed as being without prejudice to the rights of the parties and on EIGL's part, expressly to the legal rights and position of Albion in respect of any and all claims arising as a result of EIGL's alleged failure to comply with the terms of the SPA or any rights which Albion has under the SPA or otherwise.
(ii) EIGL has not agreed to the release of the monies held in escrow to meet the judgment debt.
75. In the circumstances, Albion has not received the full amount of the final instalment due under the SPA. It follows that there is an event of default under the SIA which is continuing and that accordingly Albion is entitled to enforce its security.
76. The requirement for Albion to act in a commercially reasonable manner arises under Article 46 of the Security Interests Law in the exercise of its duty to obtain a fair valuation or fair price for the collateral. That requirement does not apply to its decision to enforce the security it holds. The fact of the matter is that the final balance has not been paid in full and Albion is now entitled to enforce its security. It is not for the Court to decide whether it is commercially reasonable for it to decide to do so. When Albion does enforce its security, it will, of course, have to comply with the requirements of Part 7 of the Security Interests Law and in particular, to act in a commercially reasonable manner in exercising its duty to obtain a fair valuation or fair price for the collateral.
77. The Court does have to decide whether it is reasonably necessary to facilitate realisation of the collateral under Article 52 of the Security Interests Law, in order to make it possible or practicable for Albion to exercise its rights under the Security Interests Law. In the view of the Court, it is reasonably necessary for the following reasons:
(i) Pursuant to Article 43 of the Security Interests Law, an event of default has occurred and is continuing and written notice of that default has been served on EIGL on the 8th and 9th March 2020, specifying the event of default, stating that Albion may exercise its powers of enforcement and formally requesting the return of the share certificate and stock transfer form.
(ii) Albion has lost possession of the share certificate and stock transfer form in what is acknowledged to be a mistake on the part of its English solicitors, which EIGL and/or Heritage Oil have declined and still decline to return.
(iii) Heritage Oil has declined to act on the stock transfer form executed pursuant to the power of attorney granted under Clause 8 of the SIA notwithstanding the amendment to the Articles of Heritage Oil.
78. With reference to the issue of policy, and noting that as per Lord Sumption in Virgin Atlantic Airways v Zodiac, the policy underlying the principles he described under the portmanteau term of res judicata may not apply to the doctrine of merger, we make the following observations:
(i) EIGL is not being pursued twice for the same thing. In England, Albion has obtained summary judgment for the balance due under the SPA, which judgment remains unsatisfied. In Jersey, Albion seeks the assistance of the Court in the enforcement of its security.
(ii) Advocate Cadin suggested that if we gave assistance to Albion under Article 52, EIGL would potentially have to pay the balance outstanding under the SPA three times, firstly, through the amount held in escrow, secondly under the summary judgment of Foxton J and thirdly through the enforcement of Albion's security here. We do not accept that potential. There is one sum outstanding and Albion would have to give credit in the usual way for any recovery it makes through whatever means.
(iii) If an issue of policy arises, it is that judgment debts should be discharged.
79. Albion seeks an order under Article 52(a) of the Security Interests Law for the delivery of the certificate and stock transfer form to it and an order under Article 52(b) for the transfer of the 19,249,664 shares subject to that certificate into the name of Albion for the purpose of ensuring that it has control, for the purposes of Article 3 of the Security Interests Law, and perfection, for the purposes of Article 22 of the Security Interests Law.
80. Whilst the security interest under the SIA was to be perfected by possession and control of the certificate, we refer again to Clause 4(4) of the SIA which provides as follows:
"(4) without prejudice to any other provision of this Agreement and after any request is made by the Secured Party, to do all things necessary ... to ensure that the secured Party has control for the purposes of Article 3 of the Security Law in respect of any investment securities that constitute Collateral (including, without limitation, following the occurrence of any Event of Default, by the Secured Party becoming the registered holder of such investment securities).(our emphasis)
81. It is, therefore, incorrect for EIGL to maintain that it was never envisaged that Albion would have shares transferred into its name; it was expressly provided that this could occur after an Event of Default. An Event of Default has occurred and Albion is now entitled to enforce its security, but is unable to do so because EIGL and/or Heritage Oil refuse to return the share certificate and stock transfer form. We agree that in these circumstances Albion should now become the registered holder of the shares.
82. The Court can achieve this by the making of the two orders sought in prayer (5) of the representation, which will involve the Court policing both. As Heritage Oil is a party to these proceedings, and as we are satisfied that the third certificate and duly signed stock transfer form exist in the hands of EIGL and/or Heritage Oil, we think it is preferable simply to order Heritage Oil to register the transfer 19,249,664 shares from EIGL to Albion.
83. Those shares will be held by Albion as security under the terms of the SIA and in exercising its right of enforcement, Albion will be subject to, and EIGL will have the protection of, the provisions of Part 7 of the Security Interests Law.
84. When this judgment is handed down, we therefore propose to make the following orders:
(i) EIGL shall transfer 19,249,664 shares constituting the final tranche into the name of Albion.
(ii) Heritage Oil shall register the transfer of the 19,249,664 shares constituting the final tranche from EIGL to Albion in its register of members and shall issue a certificate of title to reflect such entry in the register of members and deliver the same to Albion.
85. Subject to any further input from counsel, we are not minded to grant relief in the form of prayer (6) as Albion does not need the permission of the Court to enforce its security. Albion also sought an order under prayer (7) that EIGL and/or Heritage Oil shall take any reasonable action or steps to enable Albion to carry out its powers of enforcement, but we think this proposed order is too widely framed to form the subject matter of a mandatory injunction.
